REGULATORY FRAMEWORK FOR DIGITAL FINANCIAL SERVICES: INTERNATIONAL AND NATIONAL PERSPECTIVES

НОРМАТИВНАЯ БАЗА ДЛЯ ЦИФРОВЫХ ФИНАНСОВЫХ УСЛУГ: МЕЖДУНАРОДНЫЕ И НАЦИОНАЛЬНЫЕ ПЕРСПЕКТИВЫ

Хазраткулов Одилбек

д-р юрид. наук, профессор, заведующий кафедрой международного частного права, Ташкентский государственный юридический университет,

Узбекистан, г. Ташкент

ABSTRACT

This article explores the regulatory frameworks governing digital financial services (DFS) from both international and national perspectives. It examines the evolution of regulations in response to the rapid growth of fintech innovations and the challenges they pose in ensuring consumer protection, financial stability, and market integrity.

АННОТАЦИЯ

В этой статье рассматриваются нормативные рамки, регулирующие цифровые финансовые услуги (DFS), как с международной, так и с национальной точек зрения. В ней рассматривается эволюция нормативных актов в ответ на быстрый рост инноваций в сфере финтеха и проблемы, которые они создают для обеспечения защиты прав потребителей, финансовой стабильности и целостности рынка.

Keywords: digital financial services, regulatory framework, fintech, consumer protection, financial stability, international perspectives.

Ключевые слова: цифровые финансовые услуги, нормативная база, финтех, защита прав потребителей, финансовая стабильность, международные перспективы.

The regulatory landscape for digital financial services is characterized by a complex interplay between international standards and national regulations. Key international bodies such as FATF, Basel Committee, and IOSCO play pivotal roles in shaping global regulatory approaches. The rapid evolution of digital finance ecosystems presents significant challenges in creating coherent regulatory frameworks. Striking a balance between fostering innovation, ensuring consumer protection, and maintaining financial stability remains a critical objective for both international and national regulatory strategies.

International standard-setting bodies and their influence on digital finance regulation: The role of international standard-setting bodies in shaping digital finance regulation has become increasingly significant as financial technologies transcend national boundaries. The Financial Action Task Force (FATF), in its 2019 guidance on virtual assets, expanded the scope of its recommendations to include virtual asset service providers (VASPs), as outlined in Recommendation 15 [1]. This guidance has been instrumental in shaping national anti-money laundering (AML) and counter-terrorist financing (CFT) regulations for cryptocurrencies and other digital assets. The Basel Committee on Banking Supervision has addressed the implications of fintech developments for banks and bank supervisors in its 2018 report, highlighting the need for risk management frameworks to evolve with technological advancements [2]. The International Organization of Securities Commissions (IOSCO) has been at the forefront of addressing regulatory challenges posed by initial coin offerings (ICOs) and other crypto-asset offerings. IOSCO's 2020 report on the regulation of crypto-asset trading platforms provides a comprehensive framework for national regulators to develop their oversight mechanisms [3]. The incorporation of these international standards into national regulations is evident in various jurisdictions. For instance, the European Union's 5th Anti-Money Laundering Directive (AMLD5) directly implements FATF recommendations on virtual assets, as seen in Article 2 which extends AML obligations to cryptocurrency exchanges and wallet providers [5]. Similarly, the Monetary Authority of Singapore (MAS) has aligned its regulatory approach to digital token offerings with IOSCO principles, as reflected in its Guide to Digital Token Offerings [4].

Regional regulatory initiatives for digital financial services: Regional regulatory initiatives have emerged as a crucial intermediary between international standards and national regulations, aiming to create harmonized approaches to digital financial services within economic blocs. The European Union's Digital Finance Package, introduced in 2020, represents a comprehensive approach to regulating digital finance across the EU. The package includes the proposed Markets in Crypto-assets Regulation (MICA), which aims to establish a pan-European regulatory framework for crypto-assets [6]. Article 3 of MICA provides detailed definitions of various types of crypto-assets, addressing a key challenge in regulating this rapidly evolving sector. The Digital Operational Resilience Act (DORA), another component of the package, focuses on cybersecurity and operational resilience in the financial sector, with Article 5 mandating specific risk management requirements for financial entities [7]. In Southeast Asia, the ASEAN Digital Integration Framework, adopted in 2018, outlines a regional approach to fostering digital financial services. The framework's action plan includes measures to harmonize digital payments regulations across member states, although implementation remains at varying stages [8]. The legal basis for these regional initiatives often stems from foundational treaties, such as the Treaty on the Functioning of the European Union (TFEU), which provides the EU with the competence to regulate financial services under Article 114 [9]. Challenges in harmonizing regulations across diverse economies are evident in both regions. A comparative study by Zetzsche et al. (2021) highlights the difficulties in achieving regulatory convergence in ASEAN due to disparities in economic development and legal systems among member states [10, p.570].

National regulatory frameworks for digital banking and neobanks: National regulatory frameworks for digital banking and neobanks have evolved rapidly to accommodate new business models while ensuring financial stability and consumer protection. Singapore's approach, embodied in the Digital Bank Framework introduced by the Monetary Authority of Singapore (MAS) in 2019, provides a comprehensive model for regulating digital-only banks. The framework, based on the Banking Act (Chapter 19), introduces two types of digital bank licenses: full bank and wholesale bank [11]. Section 7 of the Banking Act was amended to accommodate these new categories, reflecting the adaptability of existing legislative frameworks to digital innovations. In the UK, the regulatory approach to digital banks is integrated into the broader banking regulatory framework, with the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) applying a proportionate approach to new bank authorization, as outlined in the New Bank Start-up Unit initiative [12]. Brazil's regulatory framework for digital banks, established through Resolution 4.480/2016 of the National Monetary Council, allows for the creation of direct credit companies and peer-to-peer lending companies, facilitating the emergence of neobanks [13]. The impact of these regulatory approaches on financial inclusion has been significant. A study by Frost (2020) demonstrates that countries with more enabling regulatory environments for digital banks have seen faster growth in financial inclusion metrics [14]. Case studies of successful neobank launches, such as Nubank in Brazil and Revolut in the UK, illustrate how regulatory frameworks can foster innovation while maintaining prudential standards. However, challenges remain, particularly in areas of consumer protection and data privacy, as highlighted in the World Bank's 2020 report on digital financial services [15].

Regulatory approaches to peer-to-peer lending and crowdfunding platforms: Regulatory approaches to peer-to-peer (P2P) lending and crowdfunding platforms vary significantly across jurisdictions, reflecting different priorities and risk perceptions. In the United States, the Jumpstart Our Business Startups (JOBS) Act of 2012, particularly Title III (the CROWDFUND Act), provides the legal basis for equity crowdfunding. Regulation Crowdfunding, implemented by the Securities and Exchange Commission (SEC) in 2016, sets out detailed rules for crowdfunding platforms and issuers, including investment limits and disclosure requirements as specified in §227.100 [16]. The UK has taken a more integrated approach, with the Financial Conduct Authority (FCA) regulating both P2P lending and investment-based crowdfunding under its broader financial service regulatory framework. The FCA's rules for P2P lending platforms, updated in 2019, include enhanced governance requirements and marketing restrictions, as outlined in COBS 18.12 of the FCA Handbook [17]. China's regulatory approach to P2P lending has undergone significant changes, transitioning from a period of rapid growth with minimal oversight to stringent regulations. The Interim Measures for the Administration of the Business Activities of Online Lending Information Intermediary Institutions, issued in 2016, marked a turning point in Chinese P2P regulation, introducing licensing requirements and operational restrictions [18]. Regulatory interventions in P2P markets have been necessitated by instances of fraud and platform failures. The case of Ezubao in China, which resulted in a $7.6 billion fraud, led to more stringent regulations and ultimately a decision to phase out P2P lending platforms entirely [19]. Scholarly evaluations of different regulatory models have highlighted the challenges in balancing innovation with investor protection. A comparative study by Claessens et al. (2018) suggests that regulatory frameworks that provide clear operational guidelines while maintaining flexibility for innovation tend to foster more stable and sustainable P2P lending markets [20].

Mobile money and digital payment systems regulation: The regulation of mobile money and digital payment systems has been at the forefront of financial inclusion efforts in many countries, with diverse regulatory approaches emerging to address unique market conditions. Kenya's pioneering M-Pesa system operates under the National Payment System Act of 2011, with the Central Bank of Kenya issuing specific regulations for mobile money in 2014. These regulations, particularly in Section 25, address key issues such as consumer protection and interoperability [21]. India's regulatory approach to digital payments is embodied in the Unified Payments Interface (UPI) framework, developed by the National Payments Corporation of India under the Payment and Settlement Systems Act, 2007. The UPI framework, governed by the Reserve Bank of India (RBI), has been instrumental in fostering a dynamic digital payments ecosystem, with regulations addressing issues such as transaction limits and security protocols [22]. Sweden, as one of the world's most cashless societies, has taken a proactive approach to regulating digital payments. The Swedish Financial Supervisory Authority (Finansinspektionen) regulates e-money and payment institutions under the Payment Services Act (2010:751), which implements the EU's Payment Services Directive 2 (PSD2) [23]. Case studies of successful mobile money ecosystems, such as M-Pesa in Kenya and bKash in Bangladesh, highlight the importance of enabling regulatory environments. A comparative study by Sy et al. (2019) on the impact of regulations on digital payment adoption across African countries demonstrates that regulatory frameworks that allow for non-bank participation and promote interoperability tend to foster more robust digital payment ecosystems [24]. The evolving nature of digital payment technologies continues to challenge regulators, as evidenced by the ongoing debates surrounding the regulation of stablecoins and central bank digital currencies (CBDCs), as discussed in the Bank for International Settlements' 2021 report on CBDCs [25].

Regulatory frameworks for robo-advisors and algorithmic trading: The regulation of robo-advisors and algorithmic trading presents unique challenges due to the automated nature of these services and their potential impact on market stability. In the United States, robo-advisors are primarily regulated under the Investment Advisers Act of 1940, with the Securities and Exchange Commission (SEC) issuing guidance on robo-advisors in 2017. This guidance emphasizes the need for clear disclosures about the limitations of algorithmic advice and the importance of compliance with fiduciary duties [26]. The European Union has addressed automated financial advice in the context of broader financial regulations, particularly the Markets in Financial Instruments Directive II (MiFID II). Article 17 of MiFID II specifically addresses algorithmic trading, mandating robust risk controls and reporting requirements for firms engaged in this practice [27]. Japan's Financial Services Agency (FSA) has taken a principles-based approach to regulating robo-advisors, issuing guidelines in 2016 that focus on ensuring transparency and appropriate risk management [28]. Regulatory challenges posed by AI-driven financial services are evident in cases such as the 2010 Flash Crash in the US stock market, which led to more stringent regulations on high-frequency trading. The US Commodity Futures Trading Commission's (CFTC) Regulation Automated Trading (Reg AT) proposal, although not implemented, highlights the ongoing debate on how to effectively regulate algorithmic trading [29]. Scholarly articles, such as Baker and Dellaert's (2018) analysis, explore the tension between fostering innovation in automated financial advice and ensuring adequate investor protection. They argue for a regulatory approach that focuses on the quality of advice rather than the means by which it is delivered [30, p. 720].

InsurTech regulation and the evolution of insurance supervision: The InsurTech sector has prompted regulators worldwide to reevaluate traditional insurance supervision frameworks to accommodate technological innovations while maintaining consumer protection and market stability. Germany's Federal Financial Supervisory Authority (BaFin) has taken a proactive approach to InsurTech regulation, establishing a dedicated InsurTech unit and issuing guidance on the use of big data and AI in insurance, as outlined in its 2018 report on big data and artificial intelligence [31]. China's rapid growth in the InsurTech sector has been supported by regulatory initiatives such as the China Banking and Insurance Regulatory Commission's (CBIRC) 2019 guidelines on internet insurance business, which provide a framework for online insurance sales and services [32]. Singapore's regulatory approach to InsurTech is exemplified by the Monetary Authority of Singapore's (MAS) InsurTech Regulatory Sandbox, launched in 2016, which allows for the testing of innovative insurance products and business models in a controlled environment [33]. The UK's InsurTech bridge program, a collaboration between the Department for International Trade and Invest Hong Kong, demonstrates how regulatory cooperation can facilitate cross-border InsurTech development [34]. Case studies of regulatory sandboxes for insurance innovation, such as the UK Financial Conduct Authority's (FCA) sandbox cohorts, provide insights into the types of InsurTech innovations being developed and the regulatory challenges they present. A comparative study by Capgemini and Efma (2020) on global InsurTech regulation highlights the varying approaches taken by regulators to balance innovation with consumer protection, noting that jurisdictions with more flexible regulatory frameworks tend to see higher levels of InsurTech adoption [35].

Cross-border aspects of digital financial services regulation: The cross-border nature of many digital financial services poses significant regulatory challenges, requiring innovative approaches and international cooperation. The European Union's passporting regime for financial services, established under various directives including the Payment Services Directive 2 (PSD2), provides a model for facilitating cross-border digital financial services within a regional bloc. Article 11 of PSD2 outlines the procedure for passport notifications, enabling payment institutions authorized in one EU member state to operate across the EU [36]. International agreements addressing cross-border digital financial services include the UNCITRAL Model Law on Electronic Transferable Records, adopted in 2017, which aims to facilitate the use of electronic transferable records in international trade [37]. National regulations addressing cross-border digital financial services vary widely. Singapore's Payment Services Act 2019 includes provisions for regulating cross-border money transfer services, reflecting the city-state's role as a financial hub [38]. Regulatory conflicts in cross-border digital transactions are exemplified by cases such as the SEC's action against Ripple Labs, which raises questions about the classification of digital assets in international transactions [39]. Scholarly articles on jurisdictional challenges in regulating global digital finance platforms, such as Zetzsche et al.'s (2020) analysis of "embedded supervision" for decentralized financial markets, propose innovative solutions to cross-border regulatory issues [40, p.330].

The regulatory landscape for digital financial services is characterized by a dynamic interplay between international standards, regional initiatives, and national frameworks. The challenges of creating coherent and effective regulations in a rapidly evolving technological landscape are significant, requiring ongoing adaptation and innovation. International cooperation and regulatory flexibility are crucial for developing adaptive approaches that can keep pace with digital finance innovation while ensuring financial stability and consumer protection. Continuous dialogue between regulators, industry stakeholders, and academics remains essential for navigating this complex and evolving regulatory environment.

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